Joshua Haiar/South Dakota Searchlight – In September, Gov. Kristi Noem carried the American flag on horseback into a Sioux Falls arena full of fans.
It was the Cinch Playoffs Governor’s Cup, advertised as “the richest rodeo in South Dakota history,” with $1 million in prize money. Noem handed out awards, posed for photos with the winners, and shared the images with thousands of followers on her social media accounts.
Several months earlier, Noem had decided to use tax dollars from South Dakota employers to help pay for the event.
In June, the Governor’s Office of Economic Development awarded a three-year contract worth up to $2.5 million to rodeo announcer Rorey Lemmel’s Dean Entertainment Group, to promote and conduct the annual event. The contract said Sioux Falls would contribute additional matching funds.
The state money is from a special fund under the exclusive control of the governor. It’s called the Future Fund. Legislators created it in 1987 at the behest of then-Gov. George Mickelson, “for purposes related to research and economic development for the state,” according to the brief, two-sentence text of the law.
Unlike other funds administered by the Governor’s Office of Economic Development, Future Fund expenses don’t have to go through a board of citizen appointees for vetting or approval. And while Noem has publicized some Future Fund awards, she hasn’t publicized others, such as the rodeo contract. That’s in contrast to awards from other economic development funds, which are routinely announced in news releases.
Where the money comes from
The Future Fund gets its money from South Dakota employers, whose payments to the fund are tied to payroll taxes for unemployment benefits. The unemployment payroll tax is calculated by a complex set of formulas that includes a percentage of the first $15,000 of some employees’ annual earnings. The Future Fund receives a fraction of an additional percent on top of that, which the state describes as an “investment fee.”
According to the state Department of Labor and Regulation, 28,261 employers paid $23 million into the Future Fund in 2022, which equated to an average of $814 per employer. Governors can spend as much or as little from the fund as they want, and legislators have altered the contribution rates over the years, so the balance fluctuates. Noem has distributed $30.34 million from the fund this year.
Since the fund’s inception 36 years ago, governors have awarded a total of about $300 million from it, according to an estimate by the Governor’s Office of Economic Development, which said it does not have complete historical records. Utilizing government reports and newspaper archives, South Dakota Searchlight was able to document $302.5 million in total spending. Nearly two-thirds of it happened under the last two governors.
Noem has spent a total of $57 million from the fund since she took office in 2019, and her predecessor Dennis Daugaard spent $163 million during his eight years in office.
Legislators react, Noem spokesman responds
State Representative Scott Odenbach, a Republican from Spearfish, said he is unsettled by governors spending so much taxpayer money without oversight. He said economic development too often involves the government picking winners and losers.
“Like so much of government, a well-intentioned program has expanded far beyond its original purpose,” Odenbach said.
The fund’s expenditures are sometimes scrutinized by legislators, but not on a regular basis. Representative Linda Duba, a Democrat from Sioux Falls who’s a member of the Legislature’s budget committee, was unaware of the rodeo contract.
“I understand using it to find new trade partners, investing in our tech schools. Stuff like that is legitimate,” Duba said. “But promoting a rodeo? Give me a break.”
Noem’s use of the fund previously came under scrutiny from the media when she used $350,000 to pay for a fireworks show in 2020 at Mount Rushmore where she and then-President Donald Trump spoke. Noem is now routinely mentioned as a potential running mate for Trump in the 2024 presidential race.
More recently, Noem used $5 million from the Future Fund for a workforce recruitment advertising campaign starring herself, with plans for a $1.5 million second phase. The Legislature’s Executive Board plans to review that spending next month after questions arose about its effectiveness and the process used by the Noem administration to select an advertising firm to create the campaign.
Duba said legislators should demand more accountability.
“These workforce recruitment commercials look more like campaign commercials to me,” she said.
Representative Jean Hunhoff, a Yankton Republican, is lead co-chair of the Legislature’s budget committee and has served during multiple governors’ administrations. She’s waiting until she gets “all the facts” before forming an opinion on Noem’s use of the fund.
“But I’ll be candid with you, I don’t recall the fund ever resulting in this much questioning,” she said.
Noem’s chief of communications, Ian Fury, replied via email to South Dakota Searchlight questions about the fund. He said the workforce ads are “the most successful workforce recruitment campaign in South Dakota history,” the rodeo showcases the official state sport “like never before,” and the fireworks show was “the single biggest one-day advertisement our state has ever had.”
“I can’t think of better ways that Future Funds could be invested to generate a strong ROI for South Dakota,” Fury said, using the abbreviation for “return on investment.” “Yes, some of this is new and innovative. That’s the point — it’s working.”
Original Future Fund intentions
When Mickelson persuaded legislators to create the fund in 1987, the state had recently suffered the effects of a national recession and a farm economy crisis.
Mickelson told legislators during his State of the State speech that year that South Dakota needed a fund “for long-term investments, for building the infrastructure.”
“Too often, politicians are attracted to short-term programs so that by the next election they might be able to point back and look at benefits or look at results,” Mickelson said. “The courageous politicians are people who are willing to look at the long term and make a long-term investment in what we believe is right.”
He said the money would be used for purposes including libraries, scholarships, vocational education, tourism development, and scientific research. Legislators joined him to create the fund, officially named the Employer’s Investment in South Dakota’s Future Fund.
Lobbyist Julie Johnson was the secretary of labor at the time and helped write the law. She said the Mickelson administration “deliberately tried not to” narrowly define what the fund was for.
“You’ll know it when you see it,” Johnson said, referring to the law’s use of the broad term “economic development” and what it’s meant to different governors over the years. Mickelson chose to focus on investments in research, scholarships and programs on university campuses.
How other governors used the fund
Archived news stories and other historical sources indicate former governor Mickelson and his successor, Walter Dale Miller, spent at least a combined $22.5 million from the year of the fund’s creation in 1987 through 1994. Bill Janklow spent at least $5 million, and Mike Rounds spent about $55 million.
Mickelson focused on research, lab equipment and university programs. By the end of 1990, he was touting in a newspaper column that his administration had funded over 80 research- and business-linked ventures through the fund.
Miller kept a similar focus after Mickelson died in a plane crash, using $500,000 per year from the fund for a scholarship program started by Mickelson.
By 1994, during Miller’s administration, the fund was being credited for improving the University of South Dakota Medical School, and for funding research into a swine disease that saved producers $4 million a year.
Then Janklow became governor for the second time.
In 1995, Janklow ended the use of Future Fund dollars for the Mickelson scholarship program, deeming it an improper use of a fund intended by law for research and economic development. He was criticized by Democrats for taking the definition of the fund too literally.
“It’s not a proper transfer,” Janklow told the Argus Leader at the time. “It’s not a legitimate use of those funds. I have no choice. It’s not my money. It’s the public’s money.”
In 2003, Rounds became governor and began using the fund to help businesses and train employees, and for research and job creation.
Rounds referred to the Future Fund as being for “economic development,” and by the second half of his administration, descriptions of the fund said its awards were used “mostly as incentives for new businesses.”
The Future Fund was also at the heart of a controversy during Rounds’ administration.
After the death of former state economic development director Richard Benda in 2013, which was officially ruled a suicide, it was revealed that he was about to be charged with a crime. As he left state government at the end of the Rounds administration, Benda allegedly pressured the recipient of a $1 million Future Fund grant to redirect about half of the money to help Benda’s new employer cover Benda’s salary.
Daugaard became governor in 2011. He used the fund for everything from railroad improvements to scholarships. He awarded $51 million in 2014 alone, with recipients ranging from tech schools and economic development corporations to a trailer manufacturer in Mitchell.
Noem’s expenditures
Some of Noem’s Future Fund spending has been similar to Daugaard’s.
This year, she gave $1.6 million to help establish and grow the South Dakota Trade Association (run by U.S. Sen. John Thune’s son-in-law, Luke Lindberg), $3 million to the North Sioux City Economic Development Corporation for an industrial park, and $7.94 million to the Department of Labor and Regulation to expand apprenticeship programs, among other awards.
Noem’s $5 million workforce recruitment campaign, financed by the Future Fund, features her in commercials filling the roles of plumbers and welders and other high-need jobs. She’s touted the campaign as a success.
“We are building a winning workforce and ensuring that our state’s economy will continue to thrive for generations to come,” she said in a news release about the campaign.
But some lawmakers have expressed frustration about what they’ve described as a lack of clarity about the campaign’s results.
For example, the Governor’s Office has said “over 2,000 applicants have advanced to the final stages of moving” through the Freedom Works Here campaign. But under questioning from lawmakers, administration officials said that’s the number of out-of-state people who have asked for a state-assigned job adviser to help them find work in South Dakota, and the administration does not know how many of those people are directly attributable to the campaign.
Reporting by Sioux Falls Live has also revealed political connections between Noem and the Ohio-based firm that her administration chose to carry out the campaign, and has raised questions about how the firm was chosen.
The Legislature’s Executive Board will review questions and concerns about the workforce campaign on Jan. 8, the day before the start of the 2024 legislative session.